Friday, March 09, 2007
Oil is hot
Its spring 2007 and we’re just starting the 2007 driving season. Are you excited for $3 gas, shortages, and a US slowdown? No? Then you must be a driver.
2006 was a doozy for oil prices. Oil hit all time highs even after little activity in the hurricane arena. $82 a barrel anyone?
Today, oil sits at just $62 per barrel. Don’t get excited just yet though, but I think oil could easily top our 2006 highs of $80+. This year we could see $90 in my opinion.
$90? That ridiculous, the federal government won’t allow that. Let’s get past this federal regulation mumbo jumbo because thats just what it is. No matter what your government says, they can’t put that much pressure on a worldwide market. Look at the drug market, the war on drugs isn’t exactly working 
That’s a totally unrelated market, but the dynamics can be applied here. Quite simply, if the US doesn’t consume the oil, China will or India, or Mars. Point is, oil isn’t going to be destroyed like it was in the 90s.
If you’re one of the few, the hardcore, the proud, investors who possess a futures account, I want you to long oil right now. Right now, and don’t think anything about it for another year. Or atleast until fall, when you can cash out and reverse your trade.
If you do not have access to a futures account, perhaps I can interest you in some of the following Oil stocks, destined to rise in price as oil does. These stock are already off their highs but continue to post significant earnings numbers and boast PEs as low as 7. Can’t be that anywhere!
Its not the refining companies I want you in. You need to be invested in the drillers, these companies are receiving hundreds of thousands per day just for locating their offshore drillers in the seas. Companies such as Exxon Mobil or BP have had to pay three times as much as they were previously. The best part about these drillers is that their contracts are slowly expiring and the drillers are reaping the rewards. Some drillers are getting $300k a day payraises, a 300% increase over the last contract signing.
When these drillers sign to a contract they are GUARANTEED that amount. Imagine, locking in now for $80 a barrel even if oil drops to $2. These drillers will not loose money. Catastrophe in the Gulf is the only way we could see these drillers go under, but as many drillers leave the Gulf of Mexico to sights such as African coasts or the Persian Gulf these drillers are leaving risk behind.
Now to the companies:
Noble (NE)
This company was over exposed to the Gulf just a few years ago with 18 out of 49 of its drillers in the Gulf of Mexico. Now it has only 9 of its 60 vessels parked in the Gulf of Mexico. Many have attributed the recent success of the company to moving its drillers out of the Gulf of Mexico and into better, higher paying, areas of the world. Many of the contracts are expiring this year, which many investors have feared. Although these contracts are expiring, nearly all of the new contracts will pay more than the old. One of the companies rigs currently receives a rate of $128,000 per day to be drilling off the coast of Africa for Exxon Mobil. On January 1, 2008 this rig will be part of a new $433,000 a day contract to drill for Anadarko. This company is set to make large amounts of cash as these contracts expire.
The company is expected to earn $1.2Billion dollars in 2007. This amounts to $8.98 a share up from $5.35 per share it earned last year. This huge growth in earnings is the sole reason I think you should be in this company for the long term. Noble is also unleashing a healthy stock buyback plan, set on buying 11% of the outstanding shares. This should give even better returns to an already well priced stock. The current price to earnings for this stock is 8, with a PEG of .2. Analysts typically recommend stocks with a PEG of 1, this means Noble could rise in value fivefold before it would even be a recommended purchase. This is a stock for the future, get in while its cheap.